Markets in Everything: Cheat Offsetting

At Cheatneutral, we believe that we should all try to reduce the
amount we cheat on our partners, but we also realise that
fidelity isn’t always possible.

That’s why we help you neutralise your cheating. Your actions
are offset by a global network of fidelity, developed by us.
By paying Cheatneutral, you’re funding monogamy-boosting offset
projects – we simply invest the money you give us in monogamous,
faithful or just plain single people, to encourage them to stay that way.

Many people have already successfully used Cheat Neutral:

David cheated on his partner of ten years, Sebastian, with a
younger man. He described for us what happened:

"Seb was so angry with me, I felt really bad about what I’d done.
I came to Cheatneutral to offset the side effects of my cheating,
and later on, Seb said the only reason he could forgive me was
because I’d offset my cheating with Cheatneutral. Thanks to Cheatneutral,
we’re still together, I can feel good about my cheating, and
I’ve helped to reduce global cheating as well! If I do cheat on
Seb again, I’ll definitely be calling Cheatneutral."

BTW, I find real cognitive dissonance when the ‘immorality’ of offsets comes from those with a libertarian bent. They are a voluntary exchange. They are, in fact, a form of voluntary economic exchange. And, if additionality can be proven, they might even be buying something of value.

I’m thinking of starting a firm to handle Food Neutrality. If someone consumes more food than they produce, they can pay money to someone who produces more food than they consume, and we would handle coordinating the payments (and transporting the food, perhaps stockpiling it in a central location where people could pick it up when they drop off their payments). Do you think this is workable, or is it too radical?

Student should consider that perhaps the teacher knows something. I find that giving the benefit of the doubt to the author makes reading much more enlightening. Case in point, you would think that a libertarian leaning economist would appreciate the benefits of a cap and trade program, right? So why would such an economist post a mockery of carbon offsets? Deduce….Perhaps it’s because carbon offset programs are all trade and no cap. The difference is a big one. Do read Tyler’s earlier comment, as _ suggested:

Wait, is this a different argument than I think it is? When you say “dodgy not fraudulent” are you saying offsets are not bad, but merely using the prefect (global caps) to damn the good (active and honest offsets)?

I mean, sure, a rigorous and global system of carbon caps would be swell … you have a programme for that?

Many carbon offsets fund alternative energy projects. There is no objective measurement, or even order-of-magnitude estimate, of how much an extra dollar invested in alternative energy reduces carbon emissions, and indeed due to fungability the answer may well be zero, or close to it. Other carbon offsets buy EU carbon emission certificates, but since the EU has printed certificates represeting much more carbon than they actually emit, there is also effectively no marginal reduction in carbon emission from buying one. A few carbon offets plant trees, which is at least a temporary real and quantifiable carbon sink, but since trees do not store carbon anywhere near as long as unburnt oil, this is not really equivlent to the burt oil.

As an offset mechanism, then, the carbon offset markets are a fraud, and deserve to be identified as such. As a feel-good mechanism, they are like indulgences, and deserve to be ridiculed as such. Student wants to go easy on this ridiculous fraud and concentrate on ways to improve it. The way to improve it is to abandon it. A real cap-and-trade system would be a wonderful alternative, but even doing nothing would be better than perpetrating a fraud.

David Wright’s criticisms, while a bit overheated, are much more useful than the false comparison of CO2 offsets to mythical cheating offsets. Clearly, carbon offsets make sense only if they actually do (approximately) what they purport to do. In this sense, they are closely related to cap and trade systems (only voluntary instead of mandated), and for that matter, carbon taxes. While some verification exists of the offsets (at least according to sites like http://www.terrapass.com/) it is still a very, very immature market. Caveat emptor.

Fortunately, actual carbon use can be identified and verified — it’s not an impossibility. Indeed, similar systems have already worked very well in simpler cases like SO2 and NOx trading. How much better the CO2 market will be when a reliable public and/or private rating agencies emerge, which they inevitably will. Of course, this evolution can be slowed, or sped up, by the actions of citizens and thought leaders.

However, until we have an administration that acknowledges the scientific consensus on AGW, we won’t have them.

As a result, it seems perfectly appropriate to encourage everyone, from Bill Gates to Mother Teresa, to bear the full costs of their actions. If they want to consume something, they should pay for it, including the costs of the CO2 emissions. I applaud those people who make this effort. If everyone did (and if the carbon offsets actually delivered what they purport to — a big if currently), then we’d be close to an efficient set allocation of resources.

To put this in libertarian terms, people who don’t pay are arguably taking resources from me without compensating me. That’s neither just nor efficient.

Like I said, AGW is bunk. It requires the full-scale swallowing of the following bunch of Kool-aid:

1. That the earth is warming.
2. The warming is due to CO2 increases.
3. The CO2 increases are due primarily to human factors.
4. The human factors can be regulated somehow, to such a level that the warming due to (3) stops.
5. Enough of humanity will agree to the regulation for (4) to work.
6. And, all this climate mitigation stuff isn’t worse than the alternatives, such as letting the world economy grow and prosper, and execute large-scale geo-engineering if/when needed. After all, to get China and India to agree to hard CO2 reduction won’t happen without war.

Item 1 is “in consensus”. Items 2 and 3 are still in dispute. Items 4 and 5 are political questions. Item 6 is the “real” question that lurks underneath the whole debate.

Contrary to your implication, Coase was no fan of unfettered pollution. If, based on Coase, you want to advocate a system where no one has a right to unpolluted air, and must pay polluters not to emit pollution, at least you’d be intellectually consistent (though not very popular). However, invoking Coase as a reason to do nothing, leaving the cost of pollution at zero, would be a misunderstanding of his work. Polluters must face a real cost (in dollars or opportunity cost) of pollution equal to the costs they impose on others.

The question of cap-and-trade vs. carbon-tax is a very interesting one, involving intertwined economic and political arguments.

Carbon taxes are a straightforward Pigouvian solution, but they have the problem of how to compute the correct tax rate. Politically, new taxes are big loosers with mainsteam and conservative voters. A revenue-neutral compromise might be possible in which carbon taxes replace income taxes. (Indeed, even conservatives who don’t believe in AGW should support this, since it is the replacement of a tax on labor by a tax on consumption.) Liberals, though, are likely to oppose it, since it will hurt the poor by making formerly affordable activities (e.g. driving and flying) into luxuries. (Most liberals are both environmentalists and redistributionists, but when push comes to shove, most choose redistribution over environmentalism. Indeed, for many, a chief attraction of enviornmentalism is that it can be used to justify redistribution.)

Cap-and-trade systems seem nicely Coasian, but they still have the problem that there is no market mechanism for setting the cap. They also impose a (probably small) administrative cost over and above the enforcement costs that they share with a carbon tax. Politically, they are attractive because they offer the appearence of not creating a new tax. As we saw in the EU, they tend to end up toothless because big-emitter donors fanagle free credits or governments set the cap very high. But from a politicians viewpoint, those are features, not bugs. (I suspect this is why the Democratic presidential candidates have all come out in favor of cap-and-trade: they can look they are doing something without any danger of say, causing the price of gas to actually go up.)

A fully Coasian solution would be to simply find a homeless guy and give him world rights to carbon emissions: no one could so much as light match or exhale without his permission. His desire to maximize the profit on his rights would then result in a Pareto-efficient allocation of emissions. Politicially, this is obviously a non-starter.